Arbitration is a form of dispute resolution that can be used to resolve international commercial, investment, and interstate conflicts.


  • Explain the advantages of international commercial and investment arbitration
  • Define arbitration and its function in foreign relations


  • Arbitration is a form of alternative dispute resolution in which a third party reviews evidence in a dispute and makes a decision that is legally binding for all involved.
  • International arbitration has frequently been used in resolving international commercial or investment disputes.
  • International commercial and investment arbitration is popular primarily because it avoids the uncertainties and problems that come with litigating in a foreign, national court, and arbitration is confidential and enforceable.
  • The main legal instrument that governs international commercial arbitration is the 1958 New York Convention, which was created under the UN's auspices and has been signed by more than 140 countries.
  • Arbitration can also be an important tool of foreign policy, as it provides a way for states to resolve their conflicts peaceably. For example, in 1903, arbitration settled a border dispute between the United States and Canada.


  • New York Convention

    Widely considered the foundational instrument for international arbitration, this agreement requires the courts of states who signed the agreement to give effect to private arbitration agreements and to recognize and enforce arbitration awards made in other contracting states.

  • arbitration

    A process through which two or more parties use an arbitrator or arbiter (an impartial third party) to resolve a dispute.

  • alternative dispute resolution

    Resolution of a dispute through negotiation, mediation, arbitration, or similar means, as opposed to litigation.


What is Arbitration?

Arbitration, a form of alternative dispute resolution, is a legal technique for resolving disputes outside the courts, where the parties to a dispute refer it to one or more persons by whose decision they agree to be bound. It is a resolution technique in which a third party reviews the evidence in the case and imposes a decision that is legally binding for both sides and enforceable.

Arbitration is often used to resolve commercial disputes, particularly in the context of international commercial transactions. Arbitration can be an important foreign policy tool, as it allows states a forum to resolve disputes.


International Arbitration

International arbitration is a leading method for resolving disputes arising from international commercial agreements and other international relationships. As with arbitration generally, international arbitration is a creature of contract. In other words, the parties agree to submit disputes to binding resolution by arbitrators, usually by including a provision for the arbitration of future disputes in their contract. The practice of international arbitration has developed to allow parties from different legal and cultural backgrounds to resolve their disputes, generally without the formalities of their respective legal systems.


Advantages to International Arbitration

International arbitration has enjoyed growing popularity with business and other users over the past 50 years. There are many reasons that parties elect to have their international disputes resolved through arbitration. These include the desire to avoid the uncertainties and local practices associated with litigation in national courts, the desire to obtain a quicker, more efficient decision, the relative enforceability of arbitration agreements and awards, the commercial expertise of arbitrators, the parties' freedom to select and design the arbitral procedures, confidentiality of arbitration, and other benefits.


The New York Convention

The principal instrument governing the enforcement of commercial international arbitration agreements and awards is the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the "New York Convention"). The New York Convention was drafted under the auspices of the United Nations and has been ratified by more than 140 countries, including most major countries involved in significant international trade and economic transactions. The New York Convention requires the states that have ratified it to recognize and enforce international arbitration agreements and foreign arbitral awards issued in other contracting states, subject to certain limited exceptions. These provisions of the New York Convention, together with a large number of contracting states, has created an international legal regime that significantly favors the enforcement of international arbitration agreements and awards.


New York Convention Signatories

This map depicts all of the countries that have signed on to the New York Convention. This extensive treaty is often recognized as the most important instrument governing international commercial arbitration.


International Commercial and Investment Arbitration

The resolution of disputes under international commercial contracts is widely conducted under the auspices of several major international institutions and rule-making bodies. Specialist dispute resolution bodies also exist, such as the World Intellectual Property Organisation (WIPO), which has an arbitration and mediation center and a panel of international neutrals specializing in intellectual property and technology-related disputes.

The last few decades have seen the promulgation of numerous investment treaties such as the Energy Charter Treaty, which are designed to encourage investment in signatory countries by offering protections to investors from other signatory states.


Interstate Arbitration

Arbitration has been used for centuries for the resolution of disputes between states and state-like entities. The 1899 and 1907 Hague Conferences addressed arbitration as a mechanism for resolving state-to-state disputes, leading to adopting the Hague Conventions for the Pacific Settlement of International Disputes. The Conventions established the Permanent Court of Arbitration and a rudimentary institutional framework for international arbitration of inter-state disputes.

For example, in 1903, arbitration resolved a dispute over the Canada-Alaska border. The Alaska Purchase of 1867 drew the boundary between Canada and Alaska in an ambiguous fashion. With the gold rush into the Yukon in 1898, miners had to enter through Alaska, and Canada wanted the boundary redrawn to obtain its own port. The issue went to arbitration, and the Alaska boundary dispute was resolved in US favor by arbitration in 1903. In recent years, international arbitration has been used to resolve disputes between states or state-like entities, thus making arbitration an important tool in modern foreign policy.

Source: Boundless
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Last modified: Tuesday, November 10, 2020, 8:21 PM